Juggling Dynamite

Good news: Big Wall Street Investors like Blackrock, Blackstone, Invitation Homes, and Progress Residential are no longer buying up the housing market. As the rental supply balloons, rents are starting to fall. The next leg of housing downturns typically see for-sale listings surge and prices fall. Nick Gerli explains well in his latest video segment.

Especially in cities like Charlotte, Atlanta, and Las Vegas, where investor purchases declined by over 60%. Investors are bailing on these markets because a combination of 1) higher interest rates, 2) higher vacancies, and 3) lower rents is making real estate investment a money-losing proposition.

The issue with Mortgage Rates is especially problematic. Because now the 30-year fixed mortgage rate of around 7% is way above the income yield (or cap rate) that investors get from their rental. So quite literally – real estate investors who buy today with debt are losing money on their property. And thus they’ve stopped buying.

But when will these big Wall Street real estate investors start selling? Because so far they’ve held onto their houses. And thus inventory on the US Housing Market is low. But I suspect eventually, as more houses sit vacant and the tax, insurance, and mortgage bills pile-up, more investors will be induced to sell. Especially in a market like Nashville, where the investor purchases are down over 50% in the last year and the inventory on the market has surged. Here is a direct video link.

Danielle was a guest with Jim Goddard on This Week in Money, talking about recent developments in the world economy and markets, starting at 10:25 on the playbar.

As Greg Ip notes in the Wall Street Journal today: “Every recession starts out looking like a soft landing. August’s moderate increase in unemployment was welcome. The risk is that plenty more are in store, which won’t be cause for celebration.“

In reality, recessions are the norm following monetary tightening cycles, and unemployment rises through contractions and well into the next economic expansion. Unemployment is now increasing in Canada and the US, and central banks are intent on further job losses to reduce demand (inflation) in the economy.

For investors, it is critical to understand that the stock market has never bottomed while central banks are hiking or at their pause.  In the seven hiking cycles since 1969, the average time between the last rate hike and the stock market bottom has been 15 months, and the bulk of cycle losses happened while central banks were slashing rates again. On the other hand, government bond prices rose in the six months following the end of past tightening cycles (yields fell).

Frances Donald, global chief economist and strategist at Manulife Investment Management, joins BNN Bloomberg for her view on the Bank of Canada’s latest rate decision. Donald says the BoC doesn’t need anyone to get excited about rate cuts as it could bring inflation higher; hence the Bank remains hawkish. She adds the Bank will probably cut rates in early 2024. She says Canada is likely in a technical recession. Here is a direct video link.